July 10 – The Nasdaq and S&P 500 are pushing to fresh record highs again at mid-day, while the Dow Jones is lagging its peers slightly but still hanging slightly in the green at the time of writing. The VIX remains low, trading near 12.4 at mid-day as it has fallen through the morning. The dollar has bounced from morning lows but remains in the red on the day near the 104.75 level, while treasuries have seen similar action but still hang slightly below unchanged with 10-year yields near 4.29% and 2-year yields near 4.62%. Crude oil has rallied in response to this morning’s bullish DOE report, with nearby WTI looking to break its recent losing streak as it nears $82/barrel, while the ags are mostly weaker yet again.
Deflation risks remain present for China, with today’s June CPI falling to 0.2% year-on-year growth, missing expectations of a 0.4% climb as the Chinese economy continues to sputter. In month-on-month terms, June’s CPI marked the third consecutive monthly decline at -0.2%, accelerating from the -0.1% seen in May. The picture is a fair bit worse at the producer level, with China’s June PPI coming in at -0.8% year-on-year, improving from the -1.4% seen in May but remaining in negative territory for the 21st consecutive month. This further reinforces concerns of excess manufacturing capacity in China, with factory gate prices continuing to falter amid tepid demand. With ongoing concerns about the health of the world’s second-largest economy, the market turns its attention to next week’s Third Plenum, an economic reform meeting with top CCP Central Committee members shaping policy. The Chinese government has taken limited steps to address the country’s shaky economic footing but have been keen to avoid too many stimulus measures for fear of devaluing the struggling Yuan against the Dollar further. It will be interesting to watch the results of next week’s meeting to shape expectations for not only the near-term, but to see if any longer-term structural changes will be made with the hope of encouraging foreign investment to return after it dipped for the first time in more than a decade last year, a major factor contributing to China’s ongoing weakness as it de-couples along geopolitical fault lines.
Small business optimism hit its highest level of the year in June, with NFIB’s Small Business Optimism Index rising to 91.5, the highest level seen since December’s 91.9 reading. Despite the improvement, NFIB’s Chief Economist Bill Dunkelberg was still quoted as saying “Main Street remains pessimistic about the economy for the balance of the year,” with this reading still quite low compared to historical levels. 21% of respondents reported inflation as the single most important problem in operating their business, followed closely by labor quality at 19%. Interestingly, the portion of respondents reporting labor costs as their top issue rose to 11% in June, only 2% below the highest level recorded back in late 2021. So, while headline figures have begun pointing to a softening labor market, it appears that isn’t the case for all segments of the U.S. economy.
U.S. crude oil stocks unexpectedly fell again, down 3.44M barrels in the week ending 7/5 versus expectations of a 0.44M build to rebound from the week prior’s sharp draw. This puts stocks excluding the SPR at 445.1M barrels, the lowest level seen since mid-March. The draw came despite a strong uptick in refinery utilization to 95.4%, matching the highest level seen since the end of May. Meanwhile, OPEC provided some strength to the market today by sticking to their forecast for solid growth in global oil demand, calling for a 2.25M barrel per day (bpd) rise in 2024 followed by a 1.85M bpd rise in 2025. Elsewhere, U.S. gasoline stocks also fell more than expected, down 2.21M barrels on the week versus expectations of a smaller 1.12M barrel draw, while distillate stocks saw a much stronger than expected build of 4.88M barrels, the largest weekly build since January.
